How Do You Spell Relief? C-H-I-N-A

By Ben Levisohn

China’s manufacturing Purchasing Managers’ Index (as well as a slew of others) was released overnight. And while the news wasn’t good, it wasn’t any worse than investors had expected and these days that’s good news for China.

The official China Manufacturing Purchasing Managers’ Index was up slightly for the month, showing gains in almost all the categories it measures, data released Thursday showed, while a private index drawn up by banking giant HSBC Holdings PLC showed a further softening…

The official manufacturing PMI, which is heavily weighted towards larger state-owned enterprises, stood at 50.3 for July, up from 50.1 in June and higher than the 49.8 that economists polled by The Wall Street Journal had expected. A number above 50 indicates expansion from the previous month; a number below, contraction.

But the HSBC index, which covers a wider range of smaller export-oriented companies, came in at 47.7—an 11-month low, down from June’s 48.2 and unchanged from the “flash” or preliminary measure for July issued late last month.

Confused by the divergence in the two gauges? You’re not the only one. Deutsche Bank’s Jim Reid, for one, finds the difference perplexing, considering that the two measures once tracked each other closely. He writes:

Over the last couple of months, a divergence has opened up between the official manufacturing PMI and the HSBC manufacturing PMI. The gap between the two surveys is now 2.6pts versus 1.9pts in June, 1.6pts in May and 0.2pts in April. The 2.6pt gap is the largest in at least 12 months and will probably make it even more difficult to get a read on the trends in economic activity (although we note the sampling and methodological differences between the surveys). This also comes after Bloomberg reported earlier this month that the Chinese government will suspend the release of industry-specific activity indices from its monthly PMI report.

Investors, however, have decided to focus on the surprise increase in the official gauge, sending Chinese stocks higher. The iShares FTSE China 25 Index ETF (FXI) has gained 1.8% to $34.88, the iShares MSCI China Index ETF (MCHI) has jumped 2.1% to $43.45 and the Market Vectors China ETF (PEK), which tracks shares available primarily to Chinese citizens, has ticked up 0.9% on just 4,200 shares changing hands.

The optimism might be overdone, however. HSBC’s Frederic Neumann, for one, worries that Asia’s slowing growth might actually be worse than it appears due to the region’s massive debt load:

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.